Petroleum Product Pricing, Deregulation and Subsidies in Ghana: Perspectives on Energy Security

Abstract

This paper reviews Ghana’s recent experience on downstream petroleum products pricing and deregulation and looks at its implications for the nation’s energy security. The Government of Ghana in June 2015 put in place a deregulation policy that had the expectation of allowing marketers and importers of petroleum products to set directly their own prices based on import parity costs, taxes and margins. The policy has the primary objective of bringing an end to government subsidies on these products, which arises from exchange rate losses and consumer subsidies. The study welcomes government’s decision to revert to competitive market forces using automatic price formulation as this removes implicit subsidization and its distortionary effects on the economy. With the advent of full deregulation, the burden of managing forex risks will shift from the government to the BDCs and TOR, and any such losses will become their prerogative. Government needs to expedite action on the ownership structure of TOR to make it operational as we foresee it as a market stabiliser especially in the medium to long run. Petroleum subsidies, if any, should be redesigned and better targeted at the most vulnerable in the form of direct cash transfers as well as entrepreneurial skills training to improve their social and living conditions. Subsidies create distortionary effects and further exacerbate fiscal pressures, as government has to borrow or tap into its reserves to offset price differentials.

Keywords: Downstream Markets, Petroleum Products Pricing, Deregulation, Energy Security

JEL Classification: Q4, Q42, Q38